Colgate, Deepak Nitrite, Alkyl Amines, Sapphire Foods, Zensar Technologies Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Colgate Palmolive - Similar volume CAGR; beat on margin

Colgate Palmolive India Ltd.’s domestic revenue grew 5% YoY (four-year compound annual growth rate sustaining at 4%), led by high single-digit growth in toothpaste (Dabur India Ltd. clocked ~5%). Volumes arrested a declining trend of the previous four quarters and were flat (our estimate: 1%) with ~1% four-year CAGR. Gross margin continued to expand sequentially (100 bps) to 66.9%, better than our expectation of 66%.

Advertisement expenses fell 3% YoY (10.6% of sales), but these are likely to inch up in the coming quarter with the re-launch of Colgate dental cream. Ebitda margin was flat YoY (+550 basis points QoQ) at 33.5% (our estimate: 32%). Ebitda grew by 5% YoY (our estimate: -3%).

Colgate continues to focus on-

1. the increase in per capita consumption (particularly in rural where 55% of households don’t brush daily);

2. premiumising through science-based innovation; and

3. building personal care.

Deepak Nitrite - Highest phenol capacity utilisation ever

We believe that high input, utility and logistic costs will continue to put pressure on Deepak Nitrite Ltd.’s margin and further growth in Deepak Phenolics Ltd. is capped as the phenol plant is already running at over full capacity. Ebitda/adjusted profit after tax were 21/24% above our estimates, owing to lower-than-expected raw material costs and lower-than-expected interest costs.

Alkyl Amines - Robust export growth in FY23

We believe Alkyl Amines chemicals Ltd.'s current valuation already factors in positives from potential volume growth, after doubling of the acetonitrile plant capacity and ~40% additional capacities of the aliphatic amines plant.

Ebitda/adjusted profit after tax were 14/20% below our estimates, owing to higher-than-expected raw material cost, higher-than-anticipated depreciation, and lower-than-anticipated other income.

Sapphire Foods - Weak SSSG impacts profitability

Sapphire Foods India Ltd.’s Q4 FY23 performance was operationally weak, largely led by moderating same-store sales growth. While the India revenue grew by 23%, led by store addition, SSSG was weak for both KFC (+2%) and Pizza Hut (-4%) on account of a tough demand environment. The impact on operating margins was more profound (more so for the weaker franchise like Pizza Hut) as weak SSSG led to negative oplev. KFC/ Pizza Hut restaurant operating margin fell 110 bps/ 530 bps QoQ to 19/8.6%.

Zensar Technologies - Operational reset

Zensar Technologies Ltd. reported a strong Ebitda margin expansion of ~324 bps QoQ (substantial beat), while the revenue remained flat sequentially (+0.4% QoQ constant current). The strong and sustainable margin improvement during the quarter was on account of lower sub-contracting, higher utilisation, better productivity and business mix (lower passthrough) and forex. Margins are now expected to be in the range of mid-teens level, supported by continued gains in productivity—subcontracting expenses, pyramid rationalisation and utilisation improvement, going forward.

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